Financial stress effects on financial markets: dynamic connectedness and portfolio hedging

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taicir Mezghani ◽  
Mouna Boujelbène-Abbes
Keyword(s):  
Financial Markets ◽  
Financial Stress ◽  
Bond Markets ◽  
Conditional Correlation ◽  
Content Type ◽  
Time Frequency ◽  
Oil Market ◽  
Optimal Weights ◽  
Hedging Strategies ◽  
The Impact

PurposeThis paper investigates the impact of financial stress on the dynamic connectedness and hedging for oil market and stock-bond markets of the Gulf Cooperation Council (GCC).Design/methodology/approachThis study uses the wavelet coherence model to examine the interactions between financial stress, oil and GCC stock and bond markets. Second, the authors apply the time–frequency connectedness developed by Barunik and Krehlik (2018) so as to identify the direction and scale connectedness among these markets. Third, the authors examine the optimal weights, hedge ratio and hedging effectiveness for oil and financial markets based on constant conditional correlation (CCC), dynamic conditional correlation (DCC) and Baba-Engle-Kraft-Kroner (BEKK)-GARCH models.FindingsThe authors have found that the correlation between the oil and stock-bond markets tends to be stable in nonshock periods, but it evolves during oil and financial shocks at lower frequencies. Moreover, the authors find that the oil market and financial stress are the main transmitters of risks. The connectedness is mainly driven by the long term, demonstrating that the markets rapidly process the financial stress spillover effect, and the shock is transmitted over the long run. Optimal weights show different patterns for each negative and positive case of the financial stress index. In the negative (positive) financial stress case, investors should have more oil (stocks) than stocks (oil) in their portfolio in order to minimize risk.Originality/valueThis study has gone some way toward enhancing one’s understanding of the time–frequency connectedness between the financial stress, oil and GCC stock-bond markets. Second, it identifies the impact of financial stress into hedging strategies offering important insights for investors aiming at managing and reducing portfolio risk.

COVID-19 news in USA and in China: Which is suitable in explaining the nexus among Bitcoin and Gold?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdelkader Derbali ◽  
Kamel Naoui ◽  
Lamia Jamel
Keyword(s):  
Design Methodology ◽  
Conditional Heteroskedasticity ◽  
Conditional Correlation ◽  
Predictive Capacity ◽  
Content Type ◽  
Dynamic Conditional Correlation ◽  
The Hours ◽  
Important Correlation ◽  
The Impact ◽  
First Time

Purpose The purpose of this paper is to examine empirically the impact of COVID-19 pandemic news in USA and in China on the dynamic conditional correlation between Bitcoin and Gold. Design/methodology/approach This paper offers a crucial viewpoint to the predictive capacity of COVID-19 surprises and production pronouncements for the dynamic conditional correlation (DCC) among Bitcoin and Gold returns and volatilities using generalized autoregressive conditional heteroskedasticity-DCC-(1,1) through the period of study since July 1, 2019 to June 30, 2020. To assess the unexpected impact of COVID-19, this study pursues the Kuttner’s (2001) methodology. Findings The empirical findings indicate strong important correlation among Bitcoin and Gold if COVID-19 surprises are integrated in variance. This study validates the financialization hypothesis of Bitcoin and Gold. The correlation between Bitcoin and Gold begin to react significantly further in the case of COVID-19 surprises in USA than those in China. Originality/value This paper contributes to the literature on assessing the impact of COVID-19 confirmed cases surprises on the correlation between Bitcoin and Gold. This paper gives for the first time an approach to capture the COVID-19 surprise component. Also, this study helps to improve financial backers and policymakers' comprehension of the digital currencies' market elements, particularly in the hours of amazingly unpleasant and inconspicuous occasions.

COVID-19 pandemic and connectedness across financial markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Abubakr Naeem ◽  
Saba Sehrish ◽  
Mabel D. Costa
Keyword(s):  
Financial Markets ◽  
Financial Risk ◽  
Negative Impact ◽  
Spillover Effect ◽  
External Shocks ◽  
Content Type ◽  
Time Frequency ◽  
Long Run ◽  
Short Run ◽  
Momentum Trading

Purpose This study aims to estimate the time–frequency connectedness among global financial markets. It draws a comparison between the full sample and the sample during the COVID-19 pandemic. Design/methodology/approach The study uses the connectedness framework of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018), both of which consider time and frequency connectedness and show that spillover is specific to not only the time domain but also the frequency (short- and long-run) domain. The analysis also includes pairwise connectedness by making use of network analysis. Daily data on the MSCI World Index, Barclays Bloomberg Global Treasury Index, Oil future, Gold future, Dow Jones World Islamic Index and Bitcoin have been used over the period from May 01, 2013 to July 31, 2020. Findings This study finds that cryptocurrency, bond and gold are hedges against both conventional stocks and Islamic stocks on average; however, these are not “safe havens” during an economic crisis, i.e. COVID-19. External shocks, such as COVID-19, strengthen the return connectedness among all six financial markets. Research limitations/implications For investors, the study provides important insights that during external shocks such as COVID-19, there is a spillover effect, and investors are unable to hedge risk between conventional stocks and Islamic stocks. These so-called safe haven investment alternatives suffer from the similar negative impact of systemic financial risk. However, during an external shock such as COVID-19, cryptocurrencies, bonds and gold can be used to hedge risk against conventional stocks, Islamic stocks and oil. Moreover, the findings imply that by engaging in momentum trading, active investors can gain short-run benefits before the market processes any new information. Originality/value The study contributes to the emergent literature investigating the connectedness among financial markets during the COVID-19 pandemic. It provides evidence that the return connectedness among six global financial markets, namely, conventional stocks, Islamic stocks, bond, oil, gold and cryptocurrency, is extremely strong. From a methodological standpoint, this study finds that COVID-19 pandemic shock has a significant short-run impact on the connectedness among financial markets.

Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market

2019 ◽  
Vol 13 (1) ◽  
pp. 24-41
Author(s):  
Emna Mnif ◽  
Bassem Salhi ◽  
Anis Jarboui
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Hurst Exponent ◽  
Efficiency Index ◽  
Parameter Method ◽  
Content Type ◽  
Efficiency Assessment ◽  
Time Varying Parameter ◽  
Activity Types ◽  
The Impact

Purpose The purpose of this paper is to present the Islamic stock and Sukuk market efficiency and focus on the presence of investor herding behaviour (HB) captured by Hurst exponent estimation. Design/methodology/approach The Hurst exponent was estimated with various methods. The authors studied the evolving efficiency of the “Dow Jones” indices from 1 January 2010 to 30 December 2016 using a rolling sample of the Hurst exponent. In addition, they used a time-varying parameter method based on the Hurst of delayed returns. After that, the robust Hurst method was considered. In the next step, the efficiency of the different activity types of Islamic bonds was studied using an efficiency index. Finally, the Hurst exponent estimates were applied to assess the presence of HB. Findings The results show that, firstly, there’s a strong correlation between the “DJIM” and “DJSI” prices and returns. Secondly, by using robust Hurst estimate, it is observed that the “DJIM” is the most efficient market. The Hurst exponent estimation results show that HB is more intensive in the Islamic stock market. These results indicate also the inexistence of this behaviour in the studied Sukuk market. Research limitations/implications Sukuk as Islamic financial assets is recent. Their relative time series are not long enough to apply the long memory approach. Furthermore, this work can be extended to study other Islamic financial markets. Practical implications Herding affects risk-return characteristics of assets and has an impact on asset pricing models. Practitioners are interested in understanding herding and its timing as it might create profitable trading opportunities. Social implications This work analyses the impact of Islamic principles on the financial markets and their ability to understand some behavioural biases. Originality/value This study contributes to the literature by identifying the efficiency and the presence of HB with Hurst exponent estimation in Islamic markets.

Investigating the financial overconfidence of student-athletes

2019 ◽  
Vol 9 (4) ◽  
pp. 381-398
Author(s):  
Megan Ann McCoy ◽  
Kenneth J. White ◽  
Kim Love
Keyword(s):  
Self Efficacy ◽  
Student Athletes ◽  
Financial Stress ◽  
Financial Education ◽  
Well Being ◽  
Personal Finance ◽  
Financial Knowledge ◽  
Content Type ◽  
The Usa ◽  
The Impact

Purpose There is a paucity of empirical research that explores the financial well-being of collegiate student-athletes. The purpose of this paper is to investigate the key aspects of financial well-being (e.g. financial knowledge, financial self-efficacy and finance-related stress levels) of varsity athletes at US colleges and universities. Design/methodology/approach The authors used data from the National Student Financial Wellness Study. The data were analyzed using general linear regression models. Findings The findings suggest student-athletes have lower financial knowledge than students who are non-athletes. Despite their lower levels of financial knowledge, these student-athletes report higher levels of financial self-efficacy. Furthermore, even when controlling for scholarship funding, student-athletes reported lower levels of financial stress than their counterparts. One could interpret this as student-athletes having a false sense of confidence in their money management behaviors. This overconfidence can impact many areas of their overall financial well-being. Alternatively, non-athletes may not be as financially confident as they should be. Research limitations/implications This study could be replicated with stronger measures (e.g. Financial Self-Efficacy Scale), with the inclusion of subjective financial knowledge measures, comparing the impact of demographic variables. As, most financial constructs have gender differences (Farrell et al., 2016) and race differences (Amatucci and Crawley, 2011) and depend upon college major (Fosnacht and Calderone, 2017). Another limitation of this study is the small percentage of student-athletes, a common problem with research in this area. Further research is also needed to unpack the finding that self-efficacy decreases at higher levels of financial knowledge. Practical implications It is evident that college students (athletes/non-athletes) need financial education. For universities and college coaches, this study could be used as a rationale for providing financial education for their athletes. The addition of financial courses could be used as a recruiting tool for collegiate coaches and benefit the university. Requiring financial education could also benefit universities long term as it may potentially increase the donor possibilities by alumni. As a final note, it is important that financial courses figure out ways to improve financial self-efficacy alongside financial knowledge, as findings suggest both are integral to decreasing financial stress. Social implications Less than 4 percent of universities in the USA require students to take a personal finance course (Bledsoe et al., 2016). If more universities included personal finance as a graduation requirement and did more to engage student-athletes (and non-athletes) in financial planning, then the average level of financial knowledge would likely improve on campuses across the USA. In addition, increasing young adults financial self-efficacy could improve financial stress which is linked to mental health and physical health. Originality/value This study provides the first empirical look into the financial well-being of collegiate student-athletes across the USA. Although there are many benefits to participation in college sports, student-athletes face additional time pressures and a predisposition to clustering around certain majors. Findings suggest that collegiate athletes need additional support around their financial literacy and non-athletes may need support developing financial self-efficacy. These two findings should be used by academic institutions and athletic departments to determine how to encourage financial health in their student-athletes and general student body.

Herding behavior in Islamic GCC stock market: a daily analysis

2018 ◽  
Vol 11 (2) ◽  
pp. 182-193 ◽  
Author(s):  
Mustapha Chaffai ◽  
Imed Medhioub
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Financial Markets ◽  
Stock Returns ◽  
Stock Markets ◽  
Content Type ◽  
Quantile Regression Analysis ◽  
Herd Behaviour ◽  
The Impact ◽  
Quantile Regression Method

Purpose This paper aims to examine the presence of herd behaviour in the Islamic Gulf Cooperation Council (GCC) stock markets following the methodology given by Chiang and Zheng (2010). Generalized auto regressive conditional heteroskedasticity (GARCH)-type models and quantile regression analysis are used and applied to daily data ranging from 3 January 2010 to 28 July 2016. Results show evidence of herd behaviour in the GCC stock markets. When the data are divided into down and up market periods, herd information is found to be statistically significant and negative during upward market periods only. These results are similar to those reported in some emerging markets such as China, Japan and Hong Kong, where stock returns perform more similarly during down market periods and differently during rising markets. Design/methodology/approach The authors present a brief literature on herd behaviour. Second, the authors provide some specificity of the GCC Islamic stock market, followed by the presentation of the methodology and the data, results and their interpretation. Findings The authors take into account the difference existing in market conditions and find evidence of herding behaviour during rising markets only for GCC markets. This result was confirmed after using the quantile regression method, as evidence of herding was observed only in highly extreme periods. Stock returns perform more similarly when market is down in Islamic GCC stock market. Research limitations/implications The research limitation consists in the fact that this work can be extended to compare the GCC stock markets with other markets in Asia such as Malaysia and Indonesia. Practical implications The principal implication consists in the fact that herding behaviour is limited in the GCC markets and Islamic finance can have an important contribution to moderate the behaviour in the financial markets. Social implications The work focusses on the role of ethics in the financial markets and their ability to reduce the impact of behavioural biases. Originality/value The paper studies the behaviour of investors in the Islamic financial markets and gives an idea about the importance of the behaviour in this particular market regarding its characteristics.

Early Turkish elections could upset investor optimism

2017 ◽  
Keyword(s):  
Financial Markets ◽  
Developing Economies ◽  
Commodity Price ◽  
Bond Markets ◽  
Gradual Improvement ◽  
Content Type ◽  
Economic Fundamentals ◽  
Uncertain Outcome ◽  
The Us ◽  
Us Presidential Election

Subject The marked improvement in sentiment towards Turkish assets since mid-January. Significance Despite the uncertain outcome of Turkey’s crucial constitutional referendum on April 16, the lira has risen against the dollar while foreign investors have resumed their purchases of domestic Turkish debt, after months of heavy outflows from the local bond market. The sharp improvement in sentiment towards emerging markets (EMs) this year and the tightening in liquidity by the Central Bank (TCMB) are easing the strain on the country’s financial markets, despite significant domestic and external risks. Impacts Fears of a sharp sell-off in global bond markets following Donald Trump's victory in the US presidential election have not materialised. This is partly because aggressive monetary stimulus in Europe and Japan is continuing to suppress yields. Recent rising oil prices are sustaining the commodity price recovery that has underpinned improved sentiment towards EMs since 2016. EM currencies’ strong performance is partly due to gradual improvement in economic fundamentals in many developing economies.

US rates rift will fuel financial market volatility

2019 ◽  
Keyword(s):  
Financial Markets ◽  
Bond Markets ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Us Economy ◽  
China Trade ◽  
The Us ◽  
Investment Grade ◽  
Global Growth

Subject Financial markets outlook. Significance The decision of the US Federal Reserve (Fed) on September 18 to lower its main policy rate while not assuring investors that it will continue to loosen monetary policy is exposing divisions within the Federal Open Market Committee (FOMC), and between the Fed and bond markets. The ‘hawkish cut’ came with three dissensions, reflecting the disconnect between the resilient US economy and the deterioration in the global growth outlook. Impacts Cautious investor optimism that a US-China trade truce will be struck is fuelling US equity gains, but a substantial deal seems unlikely. The Brent oil price fell back within days following the drone attacks on Saudi Arabian oil facilities, but more short spikes are possible. Almost one-third of investment-grade government and corporate bonds are negative yielding; those with zero lifetime coupon are riskiest.

scholarly journals Detection of structural regimes and analyzing the impact of crude oil market on Canadian stock market: Markov regime-switching approach

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammadreza Mahmoudi ◽  
Hana Ghaneei
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Stock Return ◽  
Stock Exchange ◽  
Markov Switching ◽  
Stock Index ◽  
Var Model ◽  
Content Type ◽  
Oil Market ◽  
The Impact

Purpose This study aims to analyze the impact of the crude oil market on the Toronto Stock Exchange Index (TSX). Design/methodology/approach The focus is on detecting nonlinear relationship based on monthly data from 1970 to 2021 using Markov-switching vector auto regression (VAR) model. Findings The results indicate that TSX return contains two regimes: positive return (Regime 1), when growth rate of stock index is positive; and negative return (Regime 2), when growth rate of stock index is negative. Moreover, Regime 1 is more volatile than Regime 2. The findings also show the crude oil market has a negative effect on the stock market in Regime 1, while it has a positive effect on the stock market in Regime 2. In addition, the authors can see this effect in Regime 1 more significantly in comparison to Regime 2. Furthermore, two-period lag of oil price decreases stock return in Regime 1, while it increases stock return in Regime 2. Originality/value This study aims to address the effect of oil market fluctuation on TSX index using Markov-switching approach and capture the nonlinearities between them. To the best of the author’s knowledge, this is the first study to assess the effect of the oil market on TSX in different regimes using Markov-switching VAR model. Because Canada is the sixth-largest producer and exporter of oil in the world as well as the TSX as the Canada’s main stock exchange is the tenth-largest stock exchange in the world by market capitalization, this paper’s framework to analyze a nonlinear relationship between oil market and the stock market of Canada helps stock market players like policymakers, institutional investors and private investors to get a better understanding of the real world.

Syriza in opposition may obstruct Greek reform again

2017 ◽  
Keyword(s):  
Political Representation ◽  
Bond Markets ◽  
Economic Adjustment ◽  
Content Type ◽  
International Capital Markets ◽  
Private And Public ◽  
Severe Recession ◽  
Institutional Architecture ◽  
Investment Capacity ◽  
The Impact

Subject Greece’s performance as a ‘programme country’ since 2010. Significance Excluded from international capital markets for the last six years, Greece has negotiated three memoranda of understanding (MoU) with its international creditors. When its third programme concludes in July 2018, Greece will have been in economic adjustment programmes (EAP) for almost a decade. The impact on the country’s institutional architecture, sense of sovereignty and political representation has been considerable. Impacts Orderly exit from creditor assistance would increase Greece’s refinancing options, including returning to international bond markets. Severe recession will continue to impact household consumption, domestic demand and investment capacity, private and public. Greece’s crisis has regional ramifications, including the ongoing refugee crisis and fraught relations with Turkey.

scholarly journals The impact of financial restatements on financial markets: a systematic review of the literature

2020 ◽  
Vol 28 (6) ◽  
pp. 1119-1147
Author(s):  
João L.F.R. Fragoso ◽  
Rúben M.T. Peixinho ◽  
Luís M.S. Coelho ◽  
Inna C.S. Paiva
Keyword(s):  
Systematic Review ◽  
Financial Markets ◽  
Academic Community ◽  
Theory And Practice ◽  
Future Research ◽  
Review Of The Literature ◽  
Content Type ◽  
Financial Restatements ◽  
Research Questions ◽  
The Impact

Purpose The purpose of this paper is to discuss the most relevant issues related to the impact of financial restatements in the dynamics of financial markets and identify several research gaps to be investigated in future research. Design/methodology/approach The methodology is based on a systematic review of the literature described by Tranfield et al. (2003). The final sample includes 47 academic papers published from 1996 to 2019. Findings Papers in this domain discuss three main topics: how the market prices the announcement of a financial restatement; how financial restatements affect the announcing firm’s cost of capital and how financial restatements affect firms’ reputation. There are several issues to explore in future research, including whether financial restatements affect the dynamics of financial markets in Europe, whether the market fully and promptly assimilates the information content of a restatement, the role of financial analysts’ information disclosures in this process or how regulators may improve the way they provide investors with timely information about firms’ restating problems. Research limitations/implications There is always some degree of subjectivity in the definition of the keywords, search strings and selection criteria in a systematic review. These are all important aspects, as they delimitate the scope of the study and define the sample of papers to be reviewed. Practical implications The answers to the research questions identified in this paper may provide regulators with information to improve financial accounting and reporting standards and strengthen investors’ confidence in accounting information and the dynamics of financial markets. Originality/value This paper systematically reviews the relevant literature exploring the connection between financial restatements and the dynamics of financial markets. It contributes to the academic community by identifying several research questions that may impact the theory and practice related to accounting quality and capital markets.

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